Wed, 29 Nov 2006
 
 

Oskar Steffen, co-founder of SRK Consulting
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» Wobbly global macro economic situation goading gold price - Chris Hart, Absa
» Gold surplus seen for 2006
» Gold regaining global appeal
» Heading for a soft landing

Commodities to light Africa's jets
David McKay
Posted: Thu, 13 Apr 2006

[miningmx.com] -- OSKAR Steffen (65), co-founder of 32-year-old consulting firm SRK, is retiring this month after a career that’s seen him pick through the plans of some of the world’s most impressive mines.

So it’s interesting to note his view that the current bull market in mining and resources is probably the most prospective for Africa. “Nothing in the past comes close to what’s happening at the moment from an African perspective,” says Steffen.

Diamonds in Angola, copper, cobalt and gold in the Democratic Republic of Congo and the gold mines of Mali and Ghana are typical of the new investment interest in Africa. Steffen likens the new prospects to the opening of the Zambian Copperbelt in the Sixties or the discovery of gold reserves in South Africa’s Free State province.

Conversely, exploration activity has shrunk in South Africa. According to a survey by consultancy company Mineral Economics of the world’s major mining companies, around 26% of that spend was by South African firms, equal to $469m last year – R2.8bn. However, the survey shows that South African firms are spending only 5% of their budgets – $3m – in South Africa.

Steffen thinks shrinking investment in South Africa’s mining sector isn’t necessarily linked to political risk or a statement of no confidence. “It’s not a statement of faith but a question of enterprise. Mining companies will continue to develop South Africa – but in relation to the overall package.”

But there are domestic challenges. The Chamber of Mines of South Africa reported that gold production for 2005 fell 13%, representing its lowest level in 83 years. But at 296 tons, South Africa’s gold production shouldn’t fall lower. “My point here is that the mines will continue because of the price – the gold mining industry is dependent on price.”

And there are concerns. South African gold mines are locked into a long-term fixed cost that’s unsurprisingly high. And there’s a lack of flexibility owing to their maturity.

Bernard Swanepoel, CEO of Harmony Gold, has commented that it’s one of the few building South Africa’s gold mines of tomorrow. He might one day be the sole owner of significant South African gold output.

The relationship between Harmony Gold and SRK has been an interesting one. It was during Harmony’s hostile bid for Gold Fields that SRK was forced into the public eye. That was after Gold Fields asked Harmony to restate its reserves, a development that would have fundamentally affected the value in Harmony’s all-paper bid.

At that time, SRK was advising concerning Harmony’s reserves and resources statements and was forced into the limelight as a result.
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Nonetheless, it’s important for mining companies to continue to speculate on the extent of resources. “If you just stick to proven and probable reserve statements, existing and future shareholders are only buying money with money. People buy gold companies for their blue sky (inferred resources),” says Steffen.

Steffen is considering playing more golf in retirement but doesn't expect to actually stop working. He doesn’t believe either that they’ll ever be a time when SRK will list, though another consulting business, Bateman Holdings, recently listed in London. “As constituted now there’s no appeal for existing shareholders to list. Private shareholders are what make the business grow. We’d also have to have a policy of acquisition [and consequently require access to capital]. That’s not our business.”